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I have written in my eBooks that the smoking gun proving the banks at fault for the financial crisis was bogus risk management. But I stumbled upon a main-street-average-Joe explanation that is a smoking gun as well.

Readers should pay attention to this proof that the bankers are totally at fault for the housing bubble and crash.

The smoking gun is that the liar loans, which were central to the most intense part of the housing bubble, were imported from the UK, not just to the United States, but to PIIGS nations in Europe as well. The liar loans may have been different slightly in make up from country to country. For example in the UK you had to put money down. In the US you could have a no down, interest only, liar loan!

But, it is pretty clear that the financial system the world over was interested in liar loans for one reason. That reason was to get folks to buy investments in risky CDO's that made banks large profits through origination fees. This was all about the banks, thought up by the banks, and encouraged by the banks. The banks had an ulterior motive for this behavior. Main street had no clue. One banker said you just needed to fog a mirror to be eligible for a liar loan in the UK.

The truth is, the UK had been allowing these loans for years, in the early turn of the 21st century, before they were deliberately introduced to America in mid 2003. This was not just the behavior of rogue institutions in the UK. Most of the lenders, the brokers of the shadow banking system, encouraged liar loans. Only there they were called self certified mortgages.

The Royal Bank of Scotland, the biggest lender, by far, in the UK, encouraged the loans. These were not rogue groups.

The income multiples remained the same as ever in the UK.Your house could not exceed the 3.5 times income required. Only the income was inflated to meet the 3.5 times requirement. Not only that, but the true income to housing ratio was over 5 times income, due to the self certified permissiveness. The advertising actually encouraged liar loans.

Billboards had the advertising encouraging liar loans, and the brokers said it was fine, because it worked.

If you had the added pressure of knowing that you could be priced out of real estate forever you were essentially being lured into a trap, set up and executed by the banks. If you went directly to the banks and not the brokers, you would get denied, but told to go to the brokers!

The point of all this of course is that this was a multi country scam, thought up by the banks for the benefit of the banks. The criminal element was on the backside, the selling of these fraudulent bonds. On the front side, the amount of the loans actually drove real estate prices up. And we know that happened in the UK, in the USA, in Spain, etc.

Yet there is no RICO prosecutions of this ponzi scheme. Once the hot money left, the prices fell back to earth. The hot money came from international investors, who also paid the banks fees to invest their money. Hot money goes into an economy and out with no regard to true investment. Greenspan was in on it. Gramm, McCain and Clinton were in on it. Politicians were bought off by the bankers because they own the politicians!

By the way, with RICO, you do not need to prove intent, in order to prove a crime. You just need to prove a pattern of fraud.

The hot money originated in the UK Square Mile, which makes Wall Street look like a conservative place! The casino of the Square Mile is the most brazen on earth. That, of course, explains why the liar loan scam originated in the UK!

We know that the banks are busy trying to get the borrowers to share the blame. But on the deepest level of this scam, it was premeditated by the banks and would not have existed were it not for the banks.

So, how will the next housing bubble look? Well, it won't include liar loans, most likely. They are banned in the UK now. Although they are not banned in the USA. The next housing bubble could have no down, and maybe even interest only. But that will require government backing of the loans upfront, since the investors will only want covered bonds or some sort of sure vehicle. They are wary of securitized CDO's, unless they, too are backed by the government.

Most likely, it will have some sort of perpetual loan, as was once contemplated by ING with regard to Australia before they backed off. The perpetual loan is one that rolls the dice. If the house is worth more at the end of the term of the loan, you keep your house. If the loan is worth more than the house, the bank keeps your house. You see a little of this, at least for the down payment, in some rent to own schemes in Nevada.

Will the bankers be able to blow another housing bubble without liar loans? Maybe next time they won't even show the borrowers they are lying for them. Or maybe just interest only loans will require some income verification, which would make the bubble less aggressive, to be sure. We will just have to monitor this going forward. I am sure the bankers will think of something.